Austerity plan squeezes through

Greek law-makers, under terrific urging from European Union officials, elected on June 29—with 155 to 148 votes—to accept a package of austerity measures ­necessary to avert a government default and avoid a feared chain reaction of market turmoil around Europe and the world.

Markets were optimistic before the vote that Greek politicians would ignore a howling public that polls as high as 80% in opposing the $40-billion in government spending cuts and tax hikes, which are the price of the international bailout that is staving off default. Other struggling “peripheral” euro-zone members, including Ireland, Portugal, Spain and Italy, are anxious not to suffer the negative market consequences of a Greek default.

The current Greek crisis, the second in slightly more than a year, is seen by some as a possible harbinger of European disunity, a turning point for greater isolation between the 17 Eurozone members.
Others see it as a necessary spur towards deeper integration.

Prime Minister George Papandreou framed the vote in historic terms and, with new Finance Minister Evangelos Venizelos, a heavyweight in the ruling Pasok party, pushed through the package and avoided defections that could have brought the government down.

According to news reports, a Pasok party headquarters in Crete was burned down, and in Athens the outcome of the vote has brought enough teargas on to the street to put 30 people in hospital. The nation on Wednesday was in the second day of general strikes called by the trade unions. In the past weeks, the atmosphere for the mostly peaceful protests in Syntagma Square, the epicentre of political anger, has turned violent.

Greece’s Parliament was set to vote on June 30 again to enable the austerity legislation. That vote was being treated as pro forma, though some of the specific details—for instance, a huge cut in utility spending—remain sensitive.

June 29’s vote, if ratified the following day, allows the release of a $16.5-billion slice from the ­$142-billion bailout agreed in May 2010, after the Papandreou government admitted its books had been cooked to hide a $350-billion deficit.

Lacking a growth package and any structural adjustments, many Greek citizens say that agreeing to an austerity package merely sentences them to an unrelenting long-term debt problem out of which they cannot see a way.

“I’m not sure what will happen now. What I see is a lot of political and social polarisation in Greece,” said Takis Pappas, an expert on Greek politics at the University of Strasbourg.

“And this is what worries me at the moment. Greece doesn’t have room to manoeuvre. Will the opposition try to take down the government, or be silent? The opposition [New Democrats] will likely play hardball.”

The fresh $16.5-billion, however, will only sustain the Greek payroll through the summer, causing some analysts to say that June 29’s vote merely “kicks the can down the road”.

But analysts at Morgan Stanley, speaking anonymously, said the new money and time bought by “kicking the can” was necessary as a measure to calm markets and allow for new solutions and adjustments to emerge.

Philippe Waechter, chief economist at Natixis Asset Management in Paris, said the vote might be salutary but still did not offer a long-term answer. “Thanks to this vote we can avoid the problematic situation that would arise from Greece’s straight default,” Waechter said, “but this vote on a very, very drastic austerity plan only allows for Greece to benefit from the troika’s [EU, International Monetary Fund, European Central Bank] next financing tranche.

“What is preoccupying is that a considerable effort is made to just meet a short-term deadline. What will happen tomorrow if Greece is again in the same situation, which will surely occur if nothing is done to tackle long-term problems?” ­—